EU recovery funds will flow at last and could be game-changers

Nine months after EU leaders broke new ground by agreeing a large recovery spending package financed by common borrowing, national capitals are submitting their plans for how to spend their allocation to the European commission. The bloc’s three biggest economies — Germany, France and Italy — all presented their plans ahead of last Friday’s target submission date.

The gestation may seem long given the severity of the downturn, and it will be several months more before the plans are vetted and money starts to flow. But seen from the perspective of the need to secure trust between 27 sovereign nations, the recovery and resilience plans have arrived with lightning speed.

The process may already have produced results. “You would have hoped [for] investment to start as quickly as possible,” said Laurence Boone, chief economist of the OECD, the rich countries’ economic think-tank. Still, the recovery package “has allowed countries like Italy and Spain to have a strong investment plan. I’m not sure that would have been possible without [it]”.

The protracted planning may even accidentally be a good match for the longer than expected pandemic recession. “You could argue that the process is slow — but because vaccination has taken some time [disbursements] will probably coincide with the reopening of the economy so that is not bad timing,” Boone said.

People familiar with the process both in Brussels and in national capitals highlight how the challenge of putting together multiyear plans for spending and structural reforms, with clear deliverables in the digital and green areas, has itself been a novel exercise for governments — especially when the commission itself has taken a hands-on preventive approach to ensure that once a government submits a plan there is little chance it cannot be approved.

“The perception [last year] was that it would be dominated by the council” of national leaders, said Eulalia Rubio, senior research fellow at the Jacques Delors Institute. “Now we realise the main player is the commission. It has played its cards well.”

Paradoxically, rather than this massive fiscal transfer bringing to the fore the cliched contrast between “responsible” creditor nations and “profligate” debtor nations, the worst-hit countries from the last crisis emerge in a rather positive light. Rubio thinks “most of the plans will be of high quality — very good and very ambitious”.

The harsh experience of demonstrating their ability to reform in front of markets and the “troika” of creditors a decade ago may now stand southern countries in good stead. Nor does it look likely that northern “frugals” will pull the emergency brake on disbursements, which were included at the request of the Netherlands. One official from a northern member state said that keeping an eye on possible sinners would just be too time-consuming: “We count on the commission to pick up on anything stupid.”

That is not to deny that a spending initiative as big and new as this comes with risk. In a report, Rubio noted that “many governments will make generalised use of emergency procurement processes and relax budgetary controls” in order to get the money out of the door. She argued this creates both a necessity but also an opportunity to improve the EU’s tools to combat fraud and corruption.

It seems inevitable that there will be bumps on the road from planning to implementation. “A key question is how the milestones” — the concrete deliverables to be included in the final plans — “will be defined”, said Rubio. Here, again, the commission will have a central role in agreeing acceptable milestones and assessing whether they have been met.

If all goes well, the “Next Generation EU” package will fund good investments and trigger useful reforms. But just as significant as the plans themselves may be the jolt they are giving to economic governance at both the national and the European level, before a single cent has been spent.